Intraday market view alert

Okay, I took all my long positions off the table and got into shorts 50%. Holding rest cash. We broke very IMPORTANT trendline on the DOW Jones index and I think the rally from july lows is over. Next level in markets is under 1000 SPX, so for now happy to short markets here. We made a hanging man candlestick which most likely is a reversal bar. I expect some downside to start already monday with a confirmation of trend down.

Looking for a lot downside over next weeks/months into october. Will update charts before monday when I come home from holiday.



The Fed’s actions are of course game changers and the announcement of QE2 could potentially kick off yet another rally on top of this one started early July. However, if QE 2 is NOT announced, then stocks will have completed a bearish pattern, become overbought, and be ripe for the collapse to 1,010 (at the minimum) that the rising wedge is predicting on the S&P 500.

I cannot pretend to know what the Fed will do, but given the approaching election and the political backlash additional monetization would cause, the announcement of QE 2 seems unlikely at this point.

After all, the Fed has clearly stated that it views the stock market as the key gauge for economic health in the US. As I write this, stocks are only 8% off their one year high. If the Fed cannot stomach an 8% slide in stocks after a 60 % rally over the course of 13 months, then the financial world is in major and I mean MAJOR trouble.

Indeed, for the Fed to announce QE 2 now would signal not only that QE 1 failed, but that they have lost control of the markets and we are heading for a time of high systemic risk even greater than Autumn 2008.

Remember, the only thing propping the market up from March 2009 onward was the view that the Fed could pull us from the brink.

For the Fed to announce QE 2 now, when the market is still 68% up from the March 2009 lows, would destroy any faith the financial world has in the Fed (personally I never had any faith at all, but that’s a different story). This in turn would mean the market breaking to levels that would make 1,010 on the S&P 500 look absolutely heavenly… or the Dollar imploding, pushing the market higher in nominal terms, but at the cost of a dramatic collapse in the real purchasing power of stocks.

So I think the odds favor no announcement of QE 2 on Tuesday and “the next leg down” beginning for stocks around that time. At least that’s the roadmap I’m following right now.


Have a nice day!